Company Law Bill [HL]

moved Amendment No. A68:"Page 268, line 17, at end insert—" ““(2C)   Where the company has reduced its share capital, any reserve arising from the reduction shall be treated for the purposes of Part VIII as a realised profit of the company, except to the extent that the terms of the special resolution under this section, or of the court order confirming the reduction under sections 136 to 139, provide otherwise.”””” The noble Lord said: This amendment—and we are still on Clause 561—seeks to introduce a limited measure to allow the distributable profits of private companies to be augmented to provide that any reserve arising from a capital reduction falls to be treated as a realised profit for the purposes of Part VIII of the Companies Act 1985. That would apply to existing capital reduction mechanisms and the new capital reduction mechanism for private companies requiring solvency statements and it would be subject to the existing legislative safeguards or those included in the Bill for the new capital reduction mechanism. Later in Committee we will come across some amendments which are designed to provide an alternative regime under which private companies can make distributions based on a simple solvency test. The Minister will be aware that I raised this matter at Second Reading and in earlier Committee proceedings. We advocate the introduction of an alternative regime based on the solvency test under which directors can pay dividends only if they can satisfy themselves that, having paid the dividend, the company will be able to meet its debts as they fall due over the next 12 months. It is obvious, and of course we acknowledge, that the creditors still need protection. But the solution lies with a more flexible approach to the role of financial information in the context of distributions, reinforced by a focus on company solvency and on the need to preserve the company as a going concern, and by robust standards on wrongful trading, which already exist in the UK. We believe that this is a sensible amendment. Therefore, I beg to move.